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1. (Capital market line) Assume that the expected rate of return on the market portfolio is 4% and the rate of return on T-bills (the
1. (Capital market line) Assume that the expected rate of return on the market portfolio is 4% and the rate of return on T-bills (the risk-free rate) is 2%. The standard deviation of the market is 20%. Assume that the market portfolio is efficient. (a) What is the equation of the capital market line? (b) (i) If an expected return of 5% is desired, what is the standard deviation of this position? (ii) If you have $1,000 to invest, how should you allocate it to achieve the above position? (c) If you invest $400 in the risk-free asset and $600 in the market portfolio, how much money should you expect to have at the end of the year
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